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Robert  Hare 


Proofs  that  Credit  as  Money 


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PROOFS 


THAT 


CREDIT  AS  MONEY, 


IN  A 


« 


TRULY  FREE  COUNTRY, 


IS  TO  A 


GREAT  EXTENT 


to  <rom 


BY  ROBERT  HARE,  M.  D. 

Professor,  Etc.  Etc. 


ABSTRACTED  FROM  A  PAMPILLET  PUBLISHED  IN  1810,  AND  REVISED, 

BY  THE  AUTHOR. 

- 


— ©  Chw  ■ 


PifiaTrelpfa : 

PRINTED  BY  JOHN  C.  CLARK, 

No  CO,  Dock  Street. 

1834. 


HGrSr°t3 

H2SI 


PREFACE. 


It  is  well  known  that  the  vocation  of  the  author,  and  his  predominant  taste  for  the 
cultivation  of  science,  are  irreconcilable  with  political  life.  This  circumstance,  and 
the  fact  that  the  opinions  supported  in  this  pamphlet  were  first  published  more  than 
twenty  years  ago,  to  obviate  financial  objections  to  the  creation  of  a  navy,  must  render 
it  evident  that  they  originate  neither  in  the  desire  of  office,  in  bank  influence,  nor  in 
party  spirit.  In  truth  the  sentiments  with  which  the  opinions  in  question  were  ori¬ 
ginally  associated,  were  too  independent,  to  be  relished  by  either  of  the  prevailing 
parties;  and  hence,  although  approved  of  by  some  distinguished  men,  the)'  had  only  a 
limited  circulation. 


The  following  Essay  is  intended  to  prove, 

That  Credit  is  an  original  medium  of  commercial  inter¬ 
change,  constituting  in  fact  a  species  of  money. 

That  “  paper  credit”  has  been  erroneously  considered  as 
the  representative  of  gold  and  silver  money,  although  those 
metals  as  the  only  satisfactory  and  accessible  test  of  paper 
money,  are  to  a  certain  extent  necessary  to  give  it  cur¬ 
rency. 

That  while  it  is  true  that  in  this  respect,  and  in  some 
others,  gold  and  silver  may  perform  services  to  which  credit 
is  incompetent,  it  is  equally  demonstrable  that  credit  may 
avail  under  circumstances,  in  which  the  precious  metals  may 
either  be  incompetent,  or  unattainable. 

That  credit  is  especially  the  money  of  the  honest  and 
industrious ,  whether  mechanics ,  traders ,  or  cultivators  of  the 
soil . 

That  Banks  give  an  extension  to  the  credit  of  men  of  small 
capital ,  which  enables  them  to  deal  with  persons  to  whom 
their  credit  would  be  unknown,  and  thus  to  acquire  the 
means  of  employing  the  labouring  class. 

That  as  state  banks  are  useful  in  performing  services 
to  which  the  credit  of  individuals  is  incompetent,  so  a  na¬ 
tional  bank  is  advantageous  in  reaching  cases  to  which, 
state  banks  are  incompetent. 

That  banks  are  useful  in  supplying  a  more  convenient, 
and  less  expensive  currency  than  coin. 

That  credit  not  only  enables  the  capital  of  one  part  of 
our  country,  to  promote  the  industry  and  improvement  of 
other  parts,  it  also  enables  us  by  the  sale  of  bank  shares, 
or  certificates  of  state,  or  national,  debt  in  foreign  countries, 
to  enrich  our  country  by  all  the  difference  between  the  pro¬ 
fits  of  the  capital  thus  obtained,  and  the  interest  paid  to 
the  foreign  stockholders. 

That  the  blessings  arising  from  the  great  mean  of  public 
prosperity,  which  forms  the  subject  of  this  essay,  are  de¬ 
pendant  on  the  competency,  supremacy,  and  stability  of  the 
laws. 

That  in  this  respect  the  employment  of  credit  as  a  mean 
of  commercial  interchange,  has  a  happy  influence  in  asso¬ 
ciating  the  pecuniary  interest  of  the  great  mass  of  the  com¬ 
munity,  with  the  cause  of  good  morals,  public  order,  and 
true  liberty. 


ESSAY  ON  CREDIT, 

AS  MONEY. 


Thc  following'  is  conceived  to  be  u  simple,  and  obvious  illustration 
of  the  primitive  operation  of  credit,  as  a  mean  of  commercial  inter¬ 
change.  A  raw  material,  being  sold  on  credit,  in  lieu  of  remaining 
idle  in  the  hands  of  the  farmer,  becomes  in  those  of  the  manufacturer, 
an  useful  article;  and  he  is  enabled  to  return  to  the  farmer  a  better 
price,  and  to  furnish  merchants  or  consumers,  a  supply  larger  and 
cheaper  than  lie  could  have  afforded  without  the  assistance  of  his  cre¬ 
dit.  In  like  manner  the  merchant  or  manufacturer,  may  advance  to 
farmers  articles  necessary  for  consumption,  or  implements  servicea¬ 
ble  in  agriculture;  which  otherwise  had,  for  a  time  at  least,  remain¬ 
ed  unproductive  of  interest  or  profit,  notwithstanding  the  detriment 
resulting  to  cultivators  from  the  want  of  them. 

In  the  negotiations  thus  cited,  each  individual  buys  through  the 
medium  of  his  credit,  and  the  several  persons  concerned,  may  have 
current  accounts  with  each  other,  without  any  recurrence  to  coin, 
unless  as  the  received  standard  of  value.  In  this  case  therefore,  the 
employment  of  credit,  supersedes  that  of  gold  and  silver,  or  any 
other  substantial  medium  of  interchange  ;  and  it  may  be  considered 
as  performing  the  office  of  such  a  medium,  in  a  limited  degree. 

It  is  also  apparent  from  this  familiar  illustration,  that  the  same 
cpiantity  of  land,  labour,  or  capital  stock,  may  be  rendered  much 
more  productive  with  credit,  than  without  it.  The  excess  of  benefit 
thus  gained,  is  fairly  attributable  to  credit;  and  hence  credit  under 
all  its  productive  forms,  should  be  comprised  in  any  estimate  of 
wealth.  For  .as  land,  labour,  and  capital  stock,  are  solely  valuable 
on  account  of  their  actual,  or  probable  efficiency,  credit,  so  far  as  it 
increases  this  efficiency,  must  have  equal  pretensions  to  value. 

Under  a  strict  system  of  law,  where  the  payment  of  debts  is  ri¬ 
gorously  enforced,  credit,  in  its  simple  and  primitive  form,  so  far  as 
it  answers  the  purpose  of  a  medium  of  interchange,  is  preferable  to 
money.  The  man  who  enjoys  the  one,  has  nearly  an  equal  facility 
with  him,  who  commands  the  other,  in  the  purchase  of  merchandise, 
or  materials  for  manufacture.  But  the  stimulus  to  industry,  or  exer¬ 
tion,  is  very  different  in  the  two  cases.  The  mechanic  who  has  an 
hundred  dollars,  can  live  without  work  so  long  as  it  lasts.  He  may 
spend  the  whole,  or  a  part,  in  his  pleasures,  or  for  his  sustenance,  and 


6 


may  work  proportionally  less.  But  the  mechanic  who  can  command 
credit  to  the  amount  of  an  hundred  dollars,  has  nearly  the  same  ca¬ 
pacity  to  earn  money,  as  the  other;  but  his  privilege  will  not  sustain 
him  in  idleness,  or  dissipation.  It  can  only  he  of  use  to  him,  through 
his  skill  and  industry;  unless  lie  be  so  wicked  as  to  become  a  swin¬ 
dler,  and  is  permitted  by  the  law  to  swindle  with  impunity. 

It  may  however  be  demanded,  wherefore  should  not  the  money  ob¬ 
tained  through  the  medium  of  industry  and  credit,  equally  facilitate 
idleness  or  debauchery,  as  the  same  amount,  when  originally  pos¬ 
sessed.  The  answer  is,  that  before  any  one  can  by  such  means  earn 
a  large  sum,  his  habits  must  receive  a  permanent  bias,  favourable  to 
economy  and  exertion.  Experience  shows,  that  the  money  obtain¬ 
ed  by  inheritance  or  by  fortuitous  events,  is  very  often  squandered; 
while  that  which  has  been  procured  by  toil  and  care,  is  most  frequent¬ 
ly  employed,  or  disbursed,  with  prudence  or  frugality. 

The  facility  given  to  knaves  and  idlers,  in  their  exactions  from  the 
honest  and  industrious,  is  the  greatest  evil  of  credit:  an  evil  which 
can  only  be  diminished  by  the  most  rigorous  punishment  of  debtors, 
who  by  an  obvious  misapplication  of  the  property  which  they  borrow, 
prove  themselves  to  be  wanting  in  honesty.  The  rigid  enforcement 
of  penalties  against  all  who  thus  live  upon  the  public,  would  tend  to 
throw  all  the  efficient  power  of  credit  into  the  hands  of  those  who 
would  make  an  honest  use  of  it,  who  do  not  borrow,  without  a  fair 
prospect  of  profit,  and  arc  necessarily  industrious,  that  they  may 
guard  against  the  evils  of  failure. 

This  digression  has  been  made,  in  order  to  show,  that  those  ill  con¬ 
sequences  which  at  first  sight  appear  to  be  the  unavoidable  concomitant 
of  the  prevalence  of  credit,  in  a  great  measure  result  from  defects  in 
the  nature  or  execution  of  the  laws;  and  that  if  these  were  better,  and 
more  rigorously  executed,  the  abuse  of  credit,  would  more  rarely  occur. 

In  fact  there  are  no  other  means  by  which  the  advantages  of  capi¬ 
tal,  can  be  diffused  permanently  throughout  any  nation.  For  were 
such  a  diffusion  to  be  attempted,  by  a  judicious  donation  of  gold  and 
silver  to  every  one  who  would  employ  the  power  which  they  confer, 
both  profitably  for  himself,  and  advantageously  for  the  public ;  al¬ 
though  the  immediate  effects  would  be  highly  beneficial,  in  a  few  years 
extravagance,  idleness,  or  folly,  on  the  one  part — and  economy,  in¬ 
dustry,  and  prudence,  on  the  other,  would  cause  the  great  mass  of 
capital,  to  be  accumulated  into  the  coffers  of  a  minority. 

The  manufacturing  or  trading  stock,  which  had  been  preserved  by 
the  care,  or  exertion  of  the  father,  would  in  many  cases  be  dissipated 
through  the  sloth  or  extravagance  of  the  son; — and  the  frugal  and 
industrious  son,  would  as  often  be  deprived  by  the  indolent  or  extra¬ 
vagant  father,  of  that  command  of  capital,  wliich  had  been  conferred 
by  his  ancestors. — But  credit  being  in  great  measure  created  by  in¬ 
dustry,  skill,  and  integrity;  the  possessor  of  them,  in  every  well  re¬ 
gulated  society,  will  have  a  greater  or  less  command  of  such  portions 
of  the  general  stock  or  capital,  as  he  can  employ  to  so  much  greater 
advantage  than  the  possessors,  as  to  afford  them  adequate  compensa¬ 
tion  for  the  loan  of  it.  It  is  of  course  requisite  that  his  pretensions 
to  credit  should  be  known  to  those,  who  may  have  the  particular  ar¬ 
ticles  which  it  may  be  bis  interest  to  borrow,  and  their  interest  to 


7 


lend.  This  last  requisite  however,  in  the  ordinary  course  of  affairs 
must  he  frequently  wanting.  However  great  the  credit  of  a  man 
with  those  who  are  acquainted  with  him,  the  number  who  may  have 
this  acquaintance,  must  always  he  limited;  and  very  often  among  this 
number,  that  unemployed  capital  will  not  he  found,  which  it  may  be 
his  interest  to  procure.  Hence  to  give  a  more  general  efficiency  to 
the  credit  of  individuals,  banking  institutions  are  established  ;  which 
by  the  notoriety  of  their  wealth  and  punctuality,  obtain  general  credit; 
and  by  their  extensive  means  of  information,  arc  enabled  to  estimate 
the  degree  of  confidence  to  which  traders  may  be  entitled.  The 
traders  become  responsible  to  the  bank,  and  the  bank  to  the  commu¬ 
nity,  on  receiving  a  compensation  for  the  accommodation  afforded, 
in  giving  a  general  efficiency  to  the  credit  of  those,  who  otherwise 
could  exercise  it  only  w  ithin  a  sphere  comparatively  narrow. 

It  must  be  sufficiently  plain  from  the  premises,  that  those  who 
are  endowed  with  mercantile  credit,  enjoy  a  valuable  qualification 
or  privilege  in  trade,  when  compared  with  those  who  have  not  this 
endowment.  Hut  it  often  happens  that  those  who  are  in  the  lat¬ 
ter  predicament  are  so  situated,  that  they  could  employ  credit  to  ad¬ 
vantage;  w  hile  those  w  ho  can  command  it,  have  no  direct  opening 
for  its  employment.  It  is  not  then  surprising,  that  some  mode  should 
have  been  devised,  by  w  hich  the  credit  of  the  one,  should  be  made 
efficient  in  the  hands  of  the  other.  This  has  been  effected  by  various 
instruments  of  w  riting,  by  w  hich  any  individual,  company,  or  nation, 
can  transfer  for  a  certain  time,  any  portion  of  that  credit,  which  they 
cannot  directly  employ. 

The  various  papers,  thus  endowed  w  ith  transferable  credit,  have 
been  designated  by  the  generic  term,  paper  credit.  This,  as  I  have  be¬ 
fore  observed,  has  been  deemed  the  mere  representative,  or  substitute, 
of  gold  and  silver  money ;  but  from  the  preceding  inquiry,  it  does  not 
appear  that  this  supposition  is  warranted,  since  it  has  been  shown, 
that  the  principle  to  w  hich  the  paper  is  indebted  for  its  activity,  may 
exist,  or  spontaneously  originate,  under  circumstances,  in  which  the 
1»  •ecious  metals  do  not  exist,  and  cannot  originate. 

Transferable  credit  may  be  no  less  current  than  coin,  as  in  the  case 
of  bank  checks  or  notes;  or  it  may  have  a  limited  and  sluggish  cur¬ 
rency,  as  in  the  case  of  mercantile  notes,  or  bonds,  bills,  or  certifi¬ 
cates  of  stock. 

In  the  case  where  it  passes  current,  it  answers  the  purpose  of  coin 
in  circulation.  In  the  case  where  it  has  only  a  limited  currency,  it 
takes  the  place  of  hoarded  treasure. 

In  either  of  the  forms  just  delineated,  or  that  more  simple  and  pri¬ 
mitive  form  at  first  described,  credit  virtually  constitutes  a  portion  of 
commercial  capital.  It  may  be  said  to  he  the  offspring  of  capital. 
This  is  not  denied,  so  far  as  capital  inspires  confidence:  but  in  this 
respect,  it  only  acts  in  common  w  ith  all  other  sources  of  confidence. 
In  fact  capital  is  not  alw  ays  productive  of  credit;  and  the  latter  often 
arises  without  it.  We  sometimes  trust  the  poor  honest  man,  in  prefer¬ 
ence  to  the  wealthy  rogue  :  and  in  a  poor  community,  where  morality 
is  strict,  and  the  laws  rigid,  more  credit  will  he  in  operation,  than  in 
a  rich  community,  where  vice  prevails ,  and  the  laws  are  ineffi¬ 
cient . 


/ 


8 


But  although  credit  may  exist,  it  can  have  no  efficiency  without 
capital  It  avails  little  that  people  are  satisfied  of  the  credit  of  a 
dealer,  if  they  have  no  capital  to  lend.  Credit  is  therefore  an  ac¬ 
celerating  cause,  not  a  primary  source  of  wealth  :  and  its  efficiency  is 
regulated  by  the  state  of  morality,  the  wisdom  and  certainty  of  the 
laws,  the  amount  of  capital,  and  the  field  for  its  operation.  It  is  not, 
however,  limited  by  the  quantity  of  capital  within  the  nation,  when 
there  exists  a  free  intercourse  with  other  nations,  where  it  abounds 
in  greater  proportion  to  the  field  for  employment. 

In  this  we  see  the  immense  importance  of  fair  dealing  with  foreign¬ 
ers,  and  of  affording  them  the  greatest  Legal  facilities  in  the  recovery  of 
their  debts.  Should  the  foreign  purchasers  of  our  bank,  or  national 
stock,  be  at  any  time  subjected  to  loss  by  the  want  of  legislative  steadi¬ 
ness,  or  support;  it  will  cause  an  injurious  diminution  in  the  efficiency 
of  our  commercial  credit,  by  limiting  or  reducing  the  amount  of  capital, 
by  which  this  credit  is  regulated. 

It  has  already  been  shown  that  among  individuals,  credit  as  a  me¬ 
dium  of  commercial  interchange,  has  a  more  beneficial  operation  than 
money,  in  this  important  point :  that  the  latter  may  be  applied  to  the 
support  of  idleness  or  pleasure,  whereas  the  former  can  only  be  pro¬ 
ductive  through  the  medium  of  industry,  and  of  course  will  incite  the 
possessor  to  be  industrious;  unless  he  be  willing  by  employing  it  dis¬ 
honestly,  to  incur  the  evils  of  legal  punishment,  of  lost  character,  and 
of  lost  credit. 

Among  nations,  in  a  mode  in  some  degree  similar,  credit  as  a  me¬ 
dium  of  commercial  interchange,  has  the  advantage,  when  compared 
with  gold  and  silver  money. 

The  nation  which  abounds  pre-eminently  with  those  metals,  will 
not  be  industrious;  but  will  buy  of  her  neighbours,  until  her 
share  be  reduced  nearly  to  the  general  level.  It  is  well  known, 
that  such  a  superabundance  destroyed  the  industry  of  Spain.*  If 
the  abundance  should  increase  throughout  the  world,  coin  would  be 
rendered  less  convenient  by  bearing  less  value  in  proportion  to  its 
bulk;  but  its  efficiency  would  not  be  increased.  The  effect  of  such  a 
depreciation  is  demonstrated  in  Hume’s  Essay  on  Money. 

The  nation  on  the  contrary,  possessing  credit  as  a  medium  of  com¬ 
mercial  interchange,  has  that,  which  can  only  be  of  service,  in  afford¬ 
ing  facilities  to  domestic  exertion:  and  the  more  it  abounds,  the  more 
are  these  facilities  augmented. 

It  has  been  observed  that  the  aggregate  of  national  capital,  is  not 
increased  by  paper  credit ;  because  if  it  forms  an  article  on  the  credit 
side  of  the  accounts  of  one  man,  it  forms  an  equal  debit  on  the  con¬ 
trary  side  of  the  accounts  of  another. f  But  I  answer,  that  although 
the  nominal  aggregate  of  the  commercial  capital  be  not  increased, 
the  efficiency  of  the  whole,  and  consequently  the  real  value  is  in¬ 
creased;  and  that  in  estimating  his  capacity  to  grow  rich,  each  in¬ 
dividual  may  with  propriety  inquire,  not  only  how  much  property 
he  has,  and  can  employ  profitably,  but  how  much  he  can  borrow. 


See  Montesquieu  de  L’Esprit  des  Loix  ;  Tone  2d,  page  258. 
t  See  Thornion’s  Inquiry. 


9 


and  employ  profitably;  and  that  a  greater  power  in  the  one  respect, 
may  balance  a  lesser  possession  in  the  other. 

Hence  in  a  country  where  there  are  many  individuals,  who  possess 
this  power  to  borrow,  and  to  employ  profitably;  there  will  virtually 
he  more  wealth  than  in  a  country  where  there  are  few  such  indivi- 

w 

duals;  although  the  quantity  of  substantial  capital,  and  the  field  of 
profitable  employment,  should  be  equally  great.  The  prevalence  of 
paper  credit,  demonstrates  at  once  the  existence  and  the  activity  of 
this  power  to  borrow,  and  profitably  to  employ;  and  it  should  of 
course  be  taken  into  consideration  in  any  comparative  estimate  of  the 
wealth  of  any  two  communities.  For,  though  a  portion  of  the  active 
credit  in  every  community,  will  be  employed  to  facilitate  useless, 
jCrauduIent,  or  losing  transactions;  yet,  the  general  and  permanent 
employment  of  it,  is  a  sufficient  proof  that  the  aggregate  benefit  much 
exceeds  the  aggregate  evil.  It  is  by  the  excess  of  the  former,  over 
the  latter,  that  we  must  rate  the  value  of  credit;  as  we  compute  the 
profits  of  stock,  from  the  balance  of  profit  and  loss.  It  is  not  an  ob¬ 
jection  to  the  value  of  credit,  that  it  is  partially  productive  of  loss,  or 
of  fraud.  Substantial  capital  is  often  employed  to  the  detriment  of 
the  owner,  and  of  the  community;  but  this  does  not  deprive  capital  in 
the  aggregate  of  a  value,  proportioned  to  its  average  profit. 

If  the  trade  of  one  nation  be  carried  on  bv  credit,  and  that  of  ano- 
ther  be  carried  on  by  coin,  there  is  no  less  reason  for  attaching  value 
to  credit  in  the  first  instance,  than/for  attaching  it  to  coin  in  the 
last. 

Any  great  extension  or  diffusion  of  the  advantages  of  credit ,  de¬ 
mands  a  high  degree  of  security  from  internal  disturbance ,  or  exter¬ 
nal  dangers;  and  an  improved  state  of  trade ,  law ,  and  morality .* 
Now,  when  a  nation  from  superiority  in  these  advantages,  is  enabled 
to  perforin  with  credit,  not  only  the  greater  part  of  those  operations 
which  other  nations  perform  with  coin;  but  to  enjoy  from  the  activity 
of  this  invisible  principle  of  wealth,  a  diffusion  of  the  advantages  of 
capital,  and  many  well  known  conveniences  or  facilities  which  the 
precious  metals  cannot  afford;  she  is  obviously  justified  in  taking 
this  principle  of  wealth  in  all  its  active  forms,  into  any  computation 
of  comparative  resources.  For  absurd  as  it  would  be  to  estimate 
debts  in  themselves  under  any  form,  as  a  portion  of  wealth,  they 
ought  nevertheless  to  be  computed  as  so  many  demonstrations  of  the 
beneficial  activity  of  that  credit,  which  in  efficiency  is  proved  to  be 
more  than  equivalent  to  gold. 

The  difficulty  attendant  on  the  conception  that  paper  credit  should 
he  comprised  in  an  estimate  of  national  capital,  arises  from  the  no¬ 
tion,  that  the  debt  itself  is  the  object  of  valuation;  whereas  the  real 
object  of  valuation,  is  the  principle  by  which  the  debt  is  enabled  to 

*  The  simple  fact,  that  any  important  part  of  the  machinery  by  which  paper  credit 
is  supported,  is  made  subordinate  to  the  opinious  of  an  individual,  proves  to  be  suffi¬ 
cient  to  impair  its  efficacy.  It  has  been  alleged,  that  a  system  which  is  so  dependent 
upon  contingencies,  must  be  objectionable  ;  but  I  deem  it  advantageous  that  our  pros¬ 
perity  should  be  of  a  nature  so  inconsistent  with  arbitrary  power,  that  no  violation  of 
the  laws  can  take  place,  without  affecting  the  welfare  of  the  great  mass  of  the  com¬ 
munity. 

Under  such  circumstances,  the  multitude  are  made  to  feel  a  change,  which  otherwise 
not  being  geneially  perceived,  might  be  less  efficiently  resisted. 


10 


exist:  and  the  latter  is  only  computed,  as  the  measure  of  the  activity 
of  this  principle.  Hence,  it  is  not  an  objection,  that  the  paper  is  at 
some  period  to  he  redeemed.  The  extinction  of  a  note,  is  not  at¬ 
tended  by  an  extinction  of  the  principle  to  which  it  is  indebted  for  ex¬ 
istence;  and  accordingly  a  new  note  may  be  created  like  a  phoenix, 
differing  in  substance,  but  possessing  the  same  principle  of  vitality. 

An  objection  to  credit  as  a  medium  of  interchange,  may  be  founded 
on  its  liability  to  depreciation  in  moments  of  alarm,  arising  from 
anarchy  or  invasion.  This  must  undoubtedly  at  such  periods,  cause 
great  embarrassment  in  trade ;  and  much  loss  to  individuals  who  hold 
large  sums  in  paper,  or  transferable  credit.  But  it  is  to  be  recollect¬ 
ed,  that  the  cost  of  credit  originally  is  but  little  to  the  community  at 
large.  Hence,  although  it  should  be  annihilated,  there  would  arise  no 
great  national  loss ;  unless  in  the  temporary  diminution  of  profit,  re¬ 
sulting  from  the  stagnation  of  trade.  But  this  stagnation  in  moments 
of  national  danger,  would  in  great  measure  ensue,  although  gold  and 
silver  should  be  the  medium  employed ;  and  at  all  events,  the  nation 
is  gainer  by  all  the  wealth,  which  may  have  accrued  during  the  inter¬ 
vening  efficiency  of  credit.  Should  invasion  actually  take  place,  this 
depreciation  may  cause  an  eventual  saving:  as  instead  of  specie,  the 
plunderer  would  find  both  the  private  and  public  coffers  filled  with 
paper,  no  longer  endowed  with  the  principle,  to  which  it  had  owed 
its  value. 

The  retreat  of  the  invaders,  might  be  followed  by  a  restoration  of 
credit ;  but  not  by  a  restitution  of  the  gold  and  silver,  or  other  sub¬ 
stantial  and  moveable  property,  of  which  temporary  success  might 
have  given  them  the  command. 

The  very  active  currency  of  bank  checks  and  notes,  is  due  to  their 
superiority  over  gold  and  silver  money,  in  conveniency  of  form,  weight 
and  bulk;  and  to  the  management  of  the  banks;  who,  by  keeping  a 
sum  always  ready  to  answer  demands,  in  a  great  measure  prevent 
them,  and  thus  extend,  and  confirm  the  general  confidence  in  their 
credit.  In  this  case  the  expense  of  giving  currency  to  credit,  is  mea¬ 
sured  by  the  interest  of  the  sum  kept  unemployed  in  their  vaults.-^ 

Bonds,  bills,  notes,  bank  stock,  or  national  certificates,  owe  their 
more  sluggish  currency,  to  the  payment  of  that  interest,  discount,  or 
dividend,  which  renders  it  desirable  or  satisfactory  to  many  indivi¬ 
duals,  to  keep  them  in  preference  to  money;  as  they  afford  equal  se¬ 
curity  against  eventual  want,  and  are  productive  of  a  revenue  to  the 
holder. 

*  Agreeably  to  the  statement  made  in  Mr.  Binney’s  excellent  speech,  the  amount  of 
debts,  paid  through  domestic  bills  of  exchange  by  the  Bank  of  the  United  States  in 
one  year,  was  more  than  two  hundred  and  forty  millions  of  dollars;  which,  at  one  dollar 
and  20  cents  per  ounce,  would  in  weight  amount  to  twelve  millions  five  hundred  thou¬ 
sand  pounds.  If  to  this  aggregate  were  added  all  payments  otherwise  made,  what  an 
addition  to  the  labour  of  man  and  beast  would  ensue,  if  the  same  office  were  performed 
by  silver.  It  must  be  admitted,  that  the  employment  of  gold  would  be  much  less 
onerous. 

It  would,  however,  be  impracticable,  unless  the  advocates  of  a  metallic  currency  could 
have  sufficient  influence  with  the  genius  of  Aladdin’s  Lamp,  to  procure  copious  golden 
showers  ;  and  could  afterwards  induce  our  population  to  wear  out  their  pockets  in  using 
gold,  instead  of  exchanging  it  for  the  produce  of  foreign  labour,  consequently  render¬ 
ed  cheaper  in  comparison  with  domestic  products. 


11 


The  amount  of  specie  necessarily  kept  by  the  banks,  to  answer  de¬ 
mands,  being  very  small  compared  witli  the  amount  of  their  paper  in 
circulation  ;  tbc  expense  of  supporting  tbe  currency  of  bank  notes  or 
checks,  is  inconsiderable.  That  incurred  in  supporting  the  currency 
of  tbe  national  certificates,  is  balanced  by  a  proper  application  of  tbe 
fund  created  by  tbe  sale  of  them. 

tf 

Tbe  precious  metals  comprise  many  qualifications  indispensable  in 
an  efficient  circulating  medium,  and  which  are  collectively  found  in 
no  other  substances.  Hence  so  far  as  they  are  not  superseded  by 
credit,  commercial  nations  are  universally  necessitated  to  employ 
them,  as  tbe  medium  of  interchange. 

When  not  among  the  productions  of  a  country,  the  gold  and  silver 
required  for  this  purpose,  can  only  be  purchased  by  an  equivalent 
amount  in  the  productions  of  agriculture  or  art;  and  when  these 
metals  are  among  tbe  productions  of  a  country,  they  are  rarely  to  be 
procured  without  a  degree  of  labour  and  expense,  nearly  equal  to 
their  value. 

But  unless  we  subtract  tbe  comparatively  trifling  expense,  of  tbe 
banks,  and  loan  offices;  or  that  incurred  as  above  stated  in  support¬ 
ing  the  currency  of  tbe  national  certificates,  or  tbe  bank  paper;  trans¬ 
ferable  credit  under  either  of  these  forms,  constitutes  a  medium  of  in¬ 
terchange,  created  without  expenditure  of  labour,  or  advance  of  capi¬ 
tal  ;  and  may  be  created  when  that  command  of  labour  and  capital, 
which  would  be  requisite  to  purchase  any  substitute,  may  be  totally 
out  of  tbc  power  of  tbc  nation.  This  inference  is  not  hypothetical. 
Three-fourths  of  tbe  capital  of  tbe  old  national  bank  originally 
consisted  of  national  debt;  yet  upon  this  basis,  was  tbe  credit  found¬ 
ed,  which  enabled  that  institution  effectively  to  yield  to  tbe  trade 
of  tbe  United  States,  sixteen  millions  of  dollars. 

When  t he  government,  with  the  funds  borrowed  from  foreign¬ 
ers,  purchases  produce  of  tbe  farmer  or  landholder,  for  defence 
or  improvement;  tbe  nation  in  tbc  first  place  gains  by  tbe  ex¬ 
cess  of  tbe  advantage  resulting  annually  from  tbc  improvement  or 
defence,  over  tbe  interest  paid  to  tbc  foreign  creditor;  and  in  tbe 
second  place,  by  tbc  superior  efficiency  of  tbe  property  borrowed,  over 
that  which  is  consumed;  or  by  the  advantage  of  exchanging  those 
raw  materials  of  which  we  have  a  superabundance,  for  articles  of 
which  we  are  greatly  in  want. 

Nearly  similar  are  the  advantages  which  are  derived  from  the  sale 
of  our  bank  stock  in  foreign  coun  tries .  For  though  the  proceeds  of  the 
sale  go  into  the  coffers  of  the  banks ,  the  means  of  the  nation  are  equally 
increased;  as  it  enables  the  banks  to  make  greater  advances ,  either  to 
the  government ,  or  to  individuals . 

At  tbe  establishment  of  every  bank,  tbe  public  may  with  propriety 
claim  a  portion  of  t lie  stock,  sufficient  to  prevent  that  rise  in  value, 
which  causes  to  tbe  projectors  a  gain,  quite  disproportionate  to  their 
industry,  or  tbe  capital  winch  they  invest.  This  would  prevent  tbe 
injurious  multiplication  of  these  institutions,  and  would  constitute  a 
fair  source  of  revenue;  but  it  would  be  unjust  and  impolitic  to  tax, 
and  thus  to  depreciate  bank  stock,  in  tbe  bands  of  those  who  may 
have  bought  it  after  tbe  rise  has  taken  place. 

Liability  to  this  species  of  taxation  will  always  render  our  stocks 


12 


less  saleable  abroad.  Foreign  stockholders  will  not  be  willing  to 
share  our  burthens,  incurred  for  objects  by  which  they  cannot  be  be¬ 
nefited. 

Enough  has  been  said  to  demonstrate,  that  the  poorer  classes  of 
society  are  great  gainers,  if  the  capital  obtained  from  wealthy  citi¬ 
zens,  or  foreigners  through  the  public  or  bank  credit,  be  employ¬ 
ed  in  the  execution  of  designs  worthy  of  its  value.  In  any  event, 
the  poorer  classes  can  have  no  reason  to  complain,  as  they  can  never 
be  called  upon  to  pay  more  than  that  annual  interest,  which  is  so 
trifling  when  compared  with  the  annual  advantage,  if  the  capital  ob¬ 
tained  by  it,  be  invested  in  objects  permanently  beneficial.  I  say 
permanently ,  because  it  does  not  appear  correct  to  employ  the  means  af¬ 
forded  by  credit ,  in  defraying  the  ordinary  expenses  of  government. 
This  would  in  truth  be  a  robbery  of  posterity  ;  and  in  order  to  avoid  a 
measure  so  replete  with  injustice ,  the  public  credit  should  only  be  re¬ 
sorted  to  under  circumstances ,  where  the  permanent  character ,  or  pros¬ 
perity  of  the  nation  may  be  at  stake. 

I  hope  the  reader  of  the  preceding  pages  will  concur  with  me,  in 
concluding,  that  as  a  mean  of  commercial  interchange,  credit  is 
more  serviceable  than  gold  and  silver.  Since,  however,  great 
may  be  the  quantity  of  these  metals  in  a  country,  it  does  not  follow 
that  they  will  reach  the  hands  by  which  they  would  be  most  profit-  . 
ably  employed.  The  command  of  them,  is  the  exclusive  attribute 
of  the  wealthy,  while  the  command  of  credit,  is  the  universal  attri¬ 
bute  of  the  honest,  the  skilful,  and  industrious.  To  employ  the  first 
as  a  mean  of  wealth,  requires  the  previous  acquisition  of  wealth,  or  in 
other  words,  that  the  effect  should  in  some  degree  precede  the  cause. 
To  employ  the  last,  only  requires  honesty,  industry,  and  skill.  In¬ 
deed  honesty  of  principle,  is  not  requisite,  where  the  custom  of  trade, 
or  the  rigour  of  the  law,  renders  a  faithful  payment  of  debts  the  most 
profitable  course.  Prone  in  common  with  all  substantial  and  heredi¬ 
tary  wealth,  to  subside  into  channels  rather  ample  than  numerous, 
the  precious  metals  flow  through  a  country  in  large  streams,  which 
carry  out  as  much  as  they  bring  in,  and  contribute  more  to  partial 
magnificence,  than  to  general  fertility:  while  credit,  springing  up  in 
innumerable  self-created  rills,  diffuses  a  fertilizing  influence  through¬ 
out  every  region. 


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